Reforming public corporations (1)Actual state of ineffective management

Reforming public corporations (1) Reforming public corporations (2) Reforming public corporations (3)

The restructuring at public enterprises continues to be slow. As seen in the declaration for a general strike by the labor union of the state-run Korea Electric Power Corporation (KEPCO), extraordinary hardships are expected in the course of pushing through the restructuring.

The government-initiated reforms in the public sector are being shaken at its very root. Experts point out that the future of the Korean economy would be dark if the government fails to reform the inefficient management of public enterprises, one of the main problems with the national economy. The government, labor unions and people all agree. But it seems that while they support the idea, they oppose it when it interferes with their respective interests.

The Dong-a Ilbo starts a special three-part series to dig into the actual state of management at public corporations and to determine the reasons they should be reformed.

Both the ruling and opposition lawmakers berated the state-run Korea Telecom, the nation¡¯s largest telephony and Internet service provider, during the parliamentary inspection of state affairs in September. The giant corporation has retrenched 12,000 employees, 20 percent of its total, since 1997, but its personnel expenses rose 22 percent. In particular, three departments, including research development headquarters, were found to have spent 1.72 billion won allotted for research activities for drink charges (348 million won) at karaoke bars. According to the result of a special inspection into public enterprises by the Board of Audit and Inspection in September, Korea Telecom was found to have wasted 1.4 trillion won of its budget by suffering losses in investment, paying too much for personnel expenses, and inappropriate spending.

Also, two overseas corporations and eight foreign branches of the Korea Exchange Bank have suffered business deficits for two or three years over the past three years. The state-run bank¡¯s three overseas corporations and 12 branches, including one in London, had non-profitable non-performing loans amounting to 977.4 billion won as of the end of last year, with a non-performing loan ratio of 58 percent, nearly 10 times the average 6 percent of local commercial banks.

At the same time, Kibo Capital, a subsidiary of the Korea Technology Credit Guarantee Fund, Industrial Factoring Co., a subsidiary of KDB Capital, and IBK Mutual Savings and Finance Co., a subsidiary of Industrial Bank of Korea had their mother companies repay their debts of 107 billion won due to their poor management while offering loans to venture firms. In addition, the Korea Chemical Corp., now undergoing liquidation procedures, has been cited as the example of a ¡°hippopotamus devouring money¡± as it suffered business deficits amounting to 149.1 billion won from 1996 to 1999, compared with its total sales amounting to only 55.5 billion won. Under these circumstances, the restructuring is still sluggish.

The Korea Construction Management Corp., a subsidiary of the state-run Korea Road Corporation, had between 109 and 138 employees standing idle from April last year to April this year due to the sharp decrease in the volume of orders received. But it paid 3.2 billion won in personnel expenses by having them wait for assignments or stay at home while still receiving pay.

The Korea Agricultural & Rural Infrastructure Corporation which is running eight city and provincial offices with 86 branches in small cities and counties has never reformed its organizations, although employees at supporting sections, such as accounting, made up as much as 70 percent of the total number of employees.

KEPCO¡¯s subsidiary, Korea Electric Power Technology promoted, by one grade, all 1,469 union members for no other reason by to promote harmony between management and labor.

The Korea Road Corporation whose debts total 10 trillion won sold 50 of its 229 official vehicles to its employees at cheap prices from 1996 to September this year. For instance, it sold a Musso van it bought at 20,650,000 won in 1994 to an employee for 1,350,000 won, one fifth of the price at the second-hand market. Additionally, the corporation has as many as 69 cars for exclusive use of its staff members, while using deluxe Grandeurs as the traffic guidance car on highways.

Thanks to such inefficient management, employees of public enterprises have enjoyed comparatively more affluent lives that workers in private firms or other sectors. The Korean Public Telephone Co., a subsidiary of Korea Telecom, whose management is deteriorating due to the increasing number of mobile phones, paid special bonuses of 2.8 billion won to its employees at Chusok, Korea¡¯s version of Thanksgiving, drawing the money from the maintenance and repair budget. At the same time, it was found to have paid the cost (5.85 million won) of its president¡¯s doctorate course from its official budget.

Fourteen corporations, including the Pohang Iron and Steel Co. (POSCO) spent 44.4 billion won to give special bonuses according to the evaluation of management achievements since 1997 paying more than usual, or for no particular reason.

The Kookmin Bank diverted 16.2 billion won from other budget to pay special allowances to its unionized workers, who demanded the money in return for withdrawing their opposition to the inauguration of its new president. The bank also agreed to expand the allowances for honorary retirement accounting for 12 months¡¯ ordinary wages to 18 months and paid 8.8 billion won in addition by the end of July.

Prof. Ha Sung-Keun of the College of Economics at Yonsei University said, ¡°Objective materials such as the results of accounting inspections should be made public frequently and be pressured by the market for the reform of the public enterprises.¡±

¡°While the restructuring is progressing in the private sector, the reform in the public sector should be carried out more avidly, showing the sharing of pains and examples,¡± he added.

Lee Hoon dreamland@donga.com